Secured debt versus unsecured debt in the bankruptcy process

On behalf of Goldman & Beslow LLC posted in Bankruptcy on Wednesday, June 21, 2017.

Many, if not most, New Jersey residents have debt of some kind. You may be one of the many people who carry a normal amount of debt, only to find yourself slowly losing control of your financial situation after an emergency or unexpected circumstance. If you are currently dealing with a debt balance that is taking over your life, you have options.

Making the choice to file for bankruptcy is a serious decision, but it could be the right choice for you. If you are eligible, this process can allow you to discharge certain types of debt and emerge from bankruptcy protection with a strong financial future in sight. Before you decide to file, it can be useful to understand how bankruptcy deals with different types of debt.

Different debts, different solutions

There are two different types of debt, secured and unsecured. Chapter 7 and Chapter 13, the two most common chapters of consumer bankruptcy, deal with debts in different ways. Depending on the chapter of bankruptcy, some debt is eligible for discharge while other types may be eligible for reorganization, consolidation and pay off over time.

The most appropriate choice for you will depend on the type of debt you are carrying and other factors, such as your income level. The differences between the two types of debt are as follows:

Secured debt: Secured debts come with some type of asset or property that you purchased. Examples of secured debt include a home mortgage, car loan, debt from furniture purchases, appliances bought on credit and more.

Unsecured debt: This type of debt does not relate to any type of actual property, but accrues over time. Examples of this type of debt include credit card balances, medical bills and payday loans.

Bankruptcy deals with different types of debt in different ways. In some cases, secured debt, such as second or third mortgages, could convert to unsecured debt. Every individual who is considering this step will find it beneficial to know exactly what to expect and what will happen to their debt if they decide to move forward with bankruptcy.

A strong financial future is possible

Bankruptcy is rarely the first choice for any consumer. However, if you are unable to manage your monthly payments and debt collectors are breathing down your neck, it may be time to consider all of the options available to you. Whether you have secured debt, unsecured debt or a combination of the two, an experienced attorney can explain your bankruptcy options and help you pursue a strong financial future.

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